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Latin America Unravels the Populist Putdown

Writing for The New York Times’ Economix blog on March 15, Simon Johnson, a former chief economist for the International Monetary Fund (IMF), provides a well-argued defense of populism. But by offhandedly dismissing Latin American populism, his comentary examplifies the imperial double standard that keeps even “pro-populist” commentators from seeing the reality in developing countries.

Writing for The New York Times’ Economix blog on March 15, Simon Johnson, a former chief economist for the International Monetary Fund (IMF), provides a well-argued defenseofpopulism. He challenges those who treat the term “as a putdown, implying ‘the people’ want irresponsible things that would undermine the fabric of society or the smooth functioning of the economy.” It’s not irresponsible populism that’s worthy of contempt, says Johnson—it’s the oligarchs:

NYT March 15 Economix blog (nytimes.com)

When any elite gets out of control . . . the choice is either to rein it in or provide it with unlimited state backing. You can imagine which course is preferred by that powerful elite and, not surprisingly, the “capture the state” approach is often what leads to the most trouble — including irresponsible macroeconomic policies, worsening inequality and further rounds of traumatic crisis.

Johnson’s opposition to appeasing corrupt and overreaching financial elites could be constructive advice for his former institution. Historically, the IMF’s decades-old, pro-elite prescriptions for Latin America include unnecessary and harmful interest rate hikes, sacrificing economic progress and employment to keep inflation far below the levels where it might harm the economy, cutting health and education spending, allowing unfettered capital mobility, initiating massive privatizations, and engaging in pro-cyclical policies during downturns. Johnson’s successor at the IMF, Olivier Blanchard, as well as his predecessor, Raghuram Rajan, have already bucked some of the institution’s harmful, longstandingorthodoxies.

So shouldn’t Johnson’s outspokenness be a weclome development—however small—for those who support populist policies around the world (and in Latin America in particular) to counter policy elites’ disastrous record?

Not so much.

According to Johnson, populism in “North America” has proven to be “much more constructive” than in Latin America, where “there is a long tradition of populists’ falling into bed with a corrupt political elite, and the results invariably include”—you guessed it—“irresponsible macroeconomic policies and various kinds of financial disaster.”

Johnson provides one reference for this assertion. He recommends The Macroeconomics of Populism in Latin America, a 400-pagebook by the late Rudiger Dornbush, and Sebastian Edwards, two University of Chicago-trained economists. He does so despite the fact that the book was published in 1991, as the Cold War ended. In relying upon this 20-year-old work to make his case, Johnson turns a blind eye to the rich, contemporary track record of Latin American populist governments arising democratically, in response to the long-term economic failure of IMF-imposed neoliberal policies of the 1980s and 1990s.

But The Macroeconomics of Populism in Latin America was deeply flawed even for the time in which it was written. In their introduction, Dornbush and Edwards consider the issue of populist macroeconomics in a condescending multiple-choice question:

How can we explain Latin America’s proclivity toward macroeconomic mismanagement? Is it deeply rooted ignorance on the mechanics of deficit financing, or is it the deliberate consequence of Machiavellian politics or, is it, perhaps, the unavoidable outcome of distributional struggles?

There are a number of troubling aspects to Dornbush and Edwards’ analysis that deserve further scrutiny. First, they vaguely define “populist regimes” as all having a shared aim of dealing with inequality “through the use of overly expansive macroeconomic policies. These policies, which have relied on . . . a disregard for basic economic equilibria, have almost unavoidably resulted in major macroeconomic crises that have ended up hurting the poorer segments of society.” They provide little else in definitional content. The authors explain that “the message emerging from the papers in this book is clear: the use of macroeconomic policy to achieve distributive goals has historically led to failure, sorrow, and frustration.” That’s why they helpfully disabuse Latin America of its “naive confidence in the ability of governments to cure all social and economic ills.”

Second, it is worth noting that Cambridge development economist Ha-Joon Chang has analyzed the effects of these supposedly self-defeating macro policies. He finds, on the contrary, that “developing countries did not do badly at all during the ‘bad old days’ of protectionism and state intervention in the 1960s and 70s. In fact, their economic growth performance during the period was far superior [3.1% in per capita GDP a year for Latin America] to that achieved since the 1980s under greater opening and deregulation [1.1% a year from 1980-2009]. . . And even that rate was partly due to the rapid growth of countries in the region that had explicitly rejected neo-liberal policies sometime earlier in the 2000s—Argentina, Ecuador, Uruguay and Venezuela.” In fact, when Dornbush and Edwards published their book in 1991 denouncing “overly expansive” macro policies, Latin America and the Caribbean—largely compliant to IMF diktats at that point—had already averaged an entire decade of negative 0.3% growth rate per capita (1980-1990).

Third, for Dornbush and Edwards, the latter of whom served as chief economist for the Latin America and Caribbean Regions at the World Bank from 1993-1996, allinquiry is delimited to internal failures within the countries, with no mention of outside interference. In fact, the book’s contributors bury their heads in the sand with near-total discipline even in the face of the overpowering presence of U.S. imperialism. The most astonishing example of the book’s studied ignorance happens to be one of the most indisputable and well-documented examples of U.S. intervention: Chile.

According to Chapter 7 of Dornbush and Edwards’ book, written by Felipe Larraín (currently Chile’s Finance Minister) and Patricio Meller, the “decline and full collapse of the [Allende coalition government] experiment during the years 1972–73 is a clear consequence of the ‘successful’ overexpansive policies implemented in 1971.” Never mind that Nixon reacted to the 1970 elections determined to “smash Allende,” telling then-CIA director Richard Helms to “make the economy scream.” Pulitzer Prize-winning journalist Seymour Hersh details the earliest destabilization campaigns, carried out even before Allende took office:

Approval was granted for a last-minute increase of the propaganda activities designed to convince the Chilean Congress that an Allende election would mean financial chaos. Within two weeks, twenty-three journalists from at least ten countries were brought into Chile by the CIA and combined with CIA propaganda "assets" already in place to produce more than 700 articles and broadcasts both in and out of Chile before the congressional election—a staggering total whose ultimate influence cannot be measured. By late September, a full-fledged bank panic had broken out in Santiago, and vast amounts of funds were being transferred abroad. Sales of durable goods, such as automobiles and household goods, fell precipitously; industrial production also dropped. Black-market activities soared as citizens sought to sell their valuables at discounted prices.

Larraín and Meller mention Nixon, Kissinger, Richard Helms, I.T.T. and/or Pepsi precisely zero times in their scholarly analysis. Whereas U.S. Ambassador to Chile Edward Korry threatened that “not a nut or bolt will be allowed to reach Chile under Allende,” doing “all within our power to condemn Chile and the Chileans to utmost deprivation and poverty,” Larraín and Meller focus their attention exclusively on the macroeconomic policy errors of Allende’s Unidad Popular (UP) government. Its efforts to “increase real wages and to improve Chilean income distribution failed completely,” they contend, dryly adding that it “took eight years, up to 1981 (during the ‘peak of the boom’) for real wages to recover the level they had held in 1970 before the UP government.” Larraín and Meller omit from this account Pinochet’s post-1973 reign of terror, in which tens of thousands were imprisoned and killed, and an economic policy during the dictatorship that led to virtually no growth in per capita income by 1986, 13 years after the coup.

Perhaps the paper’s most artful flourish is the cynical use of the impersonal, passive voice. Nixon directed a comprehensive program of economic sabotage literally bearing Secretary of State Kissinger’s signature. The U.S. funded all major anti-government strikes, the CIA penetrated all of Chile’s political parties, and it courted the military to foment a putsch. Nevertheless, to the paper’s coauthors, economic phenomena in Chile just kind of... happen:

Real wages dropped spectacularly, by -11.3% in 1972 and -38.6% in 1973. This last figure includes a 30% cut inducedin the fourth quarter of 1973, after the military coup. . . . [B]y the end of 1971 thesignals of disequilibriumwere clear for a dispassionate observer. Bottlenecksappearedin strength during 1972, and 1973 witnessed the collapseof the whole experiment. Political instability mounted, and a coupultimately replacedthe UP Government with a military junta [emphases mine].

To borrow a phrase from Larraín and Meller’s chapter, “Ideology obscures the perception of reality to the limit.” Even more ironically, the very editors of The Macroeconomics of Populism in Latin America (unwittingly) ask the most appropriate question in light of this intellectual cover-up. In a moment of gratuitous cruelty, Dornbush and Edwards refer to Chile’s survivors, as they pieced together a democratic government in March 1990, and ask (with italics in the original) “whether countries have an economic and political memory that allows them to learn from their own mistakes.”

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Today, U.S. scholars carry on the dubious tradition of lambasting Latin American populism, whatever its prevailing definition. Due to South America’s general drift to the left in recent years, academics make increasingly strained attempts to “recognize” and discredit it. In an October 2011 paper entitled “Decreasing Inequality Under Latin America’s ‘Social Democratic’ and ‘Populist’ Governments: Is the Difference Real?,” Juan Montecino of the Center for Economic and Policy Research highlights the “arbitrary and ill-defined nature” of this endeavor.

Montecino politely dismantles the findings of economists Darryl McLeod and Nora Lustig, who purport to show that “social democratic” regimes did better than “left-populist” ones in reducing inequality in recent years. He shows that their empirical results are reversed when one runs the same regressions using data from the Economic Commission for Latin America. The paper raises questions as to whether their categories capture “anything more than a general antipathy toward one group of governments.” Unsurprisingly, this antipathy is directed toward three of the four countries Ha-Joon Chang highlights for experiencing growth after rejecting neoliberal policies: Argentina, Ecuador, and Venezuela.

Johnson has referred to Argentina as “a country that struggles over many decades (and whose leaders frequently rail against the world) and for which episodes of reasonable prosperity and new economic models are punctuated by gut-wrenching crises.” In the case of Argentina’s last gut-wrenching crisis in 2001, however, the “IMF’s fingerprints” were all over it, wrote macroeconomist Mark Weisbrot, CEPR’s co-director and Argentina expert, in late 2001. “It arranged massive amounts of loans—including $40 billion [in 2000]—to support the [overvalued] Argentine peso,” writes Weisbrot. Then, it “made its loans conditional on a ‘zero-deficit’ policy for Argentine government.” By doing so, the IMF was able to “convince most of the press that Argentina’s ‘profligate’ spending habits [were] the source of its troubles.” Finally, the IMF—an organization Tim Geithner recently considered essential for promoting U.S. foreign policy— implausibly claimed it had always been against the overvalued peso and that the loans were made in order to placate the Argentine government.

Second, Johnson seems to portray the country as wracked by serious, ongoing difficulties. But Weisbrot et al. demonstrate that since defaulting and devaluing, Argentina—widely considered ‘populist’—expanded 94% from 2002–11 (the fastest growth in the hemsiphere), reaching its pre-recession level of GDP in three years, tripling real social spending over seven years, reducing poverty and extreme poverty by two-thirds (using independent estimates of inflation), and achieving record levels of employment. Their paper also demolishes the myth repeated by many economists—including McLeod and Lustig—that Argentina’s success was largely the effect of a serendipitous commodities boom.

*

The devastating policies of the past in Latin America, as well as the more successful policies of vastly more independent governments over the past decade, are intimately tied up with Washington’s control over the hemisphere and the recent collapse of its influence—especially in South America. Roger Morris, a staffer at the National Security Council until mid-1970, clarified such considerations for Seymour Hersh:

I don’t think anybody ever fully grasped that Henry [Kissinger] saw Allende as being a far more serious threat than Castro. If Latin America ever became unraveled, it never would happen with a Castro. Allende was a living example of democratic social reform in Latin America . . . Chile scared him.

The U.S. government has long imposed double standards on the permissibility of social reforms. While instrumental to Allende’s overthrow abroad, the Nixon administration could boast progressive domestic achievements, including the creation of the Environmental Protection Agency, the Occupational Safety and Health Administration, and the Earned Income Tax Credit, widely considered one of the most important anti-poverty programs in U.S. history. Similarly, Lyndon Johnson enacted Great Society programs at home, but sent thousands of troops to the Dominican Republic in 1965 to quell an uprising demanding the restitution of the deposed social democratic president, Juan Bosch. A liberal wishing to implement land reforms, Bosch was the subject of an FBI espionage and interception operation authorized by J. Edgar Hoover in the months preceding the rebellion, as Bosch sat exiled in Puerto Rico.

Perhaps unknowingly, Johnson is simply keeping within the permissible framework of an intellectual culture that has always accommodated and justified Washington’s hypocrisy. To my knowledge, Johnson has yet to apply his support for “standing up to the banks,” “proposing a more responsible course of action than that preferred by the banking elite,” and “greater transparency in financial transactions” to the IMF, which has conducted most of its deliberations, meetings, and consultations in secret.

Many on the Left, including Dean Baker, Glenn Greenwald, and John Bellamy Foster, rightly praise Simon Johnson for his powerful condemnations of oligarchy. But as his blindspot for the IMF shows, it’s obvious there are serious limits to his analysis and advocacy. On the The New York Times website, he offhandedly dismisses Latin American populism with a reference to an outdated, far-right, academically dishonest book—all in an article that challenges the U.S. elite by praising populism. This is a compelling example of the imperial double standard that keeps “pro-populist” commentators from seeing what is going on in developing countries.

But even if the Times’ readers never learn of Latin America’s protracted struggle for self-determination against U.S. power, the region is now a breeding ground for the most constructive values associated with populism. More than a decade of successful revolts has allowed for the elections of independent, left governments in most of South America, and has brought enormous gains to the poor majority through greater economic sovereignty and democratic social reform. Or, as Kissinger might put it, Latin America has unraveled.

Keane Bhatt is an activist in Washington, D.C. He has worked in the United States and Latin America on a variety of campaigns related to community development and social justice. His analyses and opinions have appeared in a range of outlets, including NPR, The Nation, The St. Petersburg Times, CNN En Español, Truthout, and Upside Down World. In the coming weeks he will begin writing for NACLA in a new blog titled “Manufacturing Contempt,” which will take a critical look at the U.S. press and its portrayal of the hemisphere.

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